Is service tax applicable to a unit located in an SEZ

Written by Kamal Aggarwal | Ankur Jain | Updated: Jul 26 2008, 05:27am hrs
We are a company engaged in setting up of local area networks (LAN) for offices. We have been awarded a contract to set up the LAN facility for an enterprise based in a Special Economic Zone (SEZ). We are also required to extend the LAN facility to an office premise maintained by the client in Delhi. We have been informed that service tax would not be chargeable from the client as it is located in a SEZ. Is this stand correct

As per the SEZ and service tax laws, taxable services provided to a unit located in a SEZ would be exempt from service tax only if the services are consumed within the SEZ. In case the services are provided to a unit located in a SEZ but are not actually consumed within the SEZ, service tax may be leviable. In your case, while services provided to the SEZ unit may be considered to be provided and consumed within the SEZ, services provided in relation to the premises in Delhi may be considered to have be consumed outside the SEZ. Accordingly, service tax may be leviable on the value of services attributable to the setting up of the LAN facility in the Delhi premises. You may bifurcate the total consideration, and charge service tax only on the amount chargeable in respect of services provided for the premises in Delhi.

We are a company engaged in sale of sanitaryware with branches throughout India. We maintain a stock of goods at our warehouse in Mumbai. Our branches place a requisition on the warehouse for supply of goods based on the orders we receive. Based on such specific requisition, goods are dispatched from the warehouse to the branches outside Maharashtra. Are we liable to pay sales tax in Maharashtra in respect of such transfers

Under the central sales tax (CST) legislation, CST is levied on the sale of goods that occasions the movement of goods from one state to another. In the current case, transfer of goods from the warehouse to branch offices located in other states is made pursuant to the pre-existing order placed by the customers. Therefore, the sale of goods to the customers occasions the inter-state movement of goods. Accordingly, CST would be levied in Maharashtra with respect to such sales.

We have recently incorporated our 100% subsidiary company. We are providing various services to our subsidiary, which are liable to service tax under the category of business auxiliary services. We havent received any payment in this regard. Accordingly, our subsidiary is reflected as a debtor in our books of accounts. In view of the same, kindly let us know whether we are liable to deposit any service tax.

As per the recent amendment in the service tax legislation, service tax is payable when an entity credits its associated enterprise in its books of accounts for taxable services provided to it, even when no payment is received from such associated enterprise. For this purpose, the term associated enterprise has the same meaning as defined in the Income Tax Act. In case your subsidiary company qualifies as an associated enterprise, youd be liable to pay service tax as soon as the entries in the books of accounts in respect of providing taxable services are made, irrespective of the fact whether payment has been received or not.

We are a firm of management consultants. During the course of our activities, we have procured certain input services on which service tax has been charged by the vendors. However, we have not made payment towards a few invoices. Can we still avail Cenvat credit of service tax charged from us in respect of such invoices where payment has not been made

The Cenvat Credit Rules, 2004 prescribe that Cenvat credit of service tax paid on input services can be availed of only, if payment towards such input services (including service tax) has been made by the service recipient. Accordingly, you would not be eligible to avail Cenvat credit of the service tax amounts pertaining to any unpaid invoices.

Respondents are senior professionals at Ernst & Young. The replies do not constitute professional advice, but are based on interpretation of facts available in readers queries to the professionals. Neither Ernst & Young nor this publication is liable for any action taken on the basis of this information